NGO Rainforest Action Network (RAN) claims it has found many Japanese companies are either “systematically misreporting compliance” under Japan’s Corporate Governance Code, or have a “fundamental lack of understanding as to what constitutes meaningful sustainability reporting and stakeholder engagement.”

In June 2015, Japan introduced a Corporate Governance Code intended to increase transparency and oversight related to environmental, social and governance (ESG) performance. RAN marked the first anniversary of the its implementation by evaluating the Code reports of ten major Japanese companies with known links to tropical deforestation and associated social risks through their supply chains, trading divisions or financial relationships. The NGO asserts that none of the companies are sufficiently disclosing their risks, and advises shareholders to take heed.

“Failing to disclose a company’s environmental and social risks puts shareholders at risk from unforeseen scandals which can in turn lower company brand value, cause cancellations of supplier contracts, or result in legal action,” RAN stated in a press release.

The organization’s latest report, Shareholders beware: How major Japanese companies are misreporting sustainability under the Corporate Governance Code, exposes a lack of progress in how the companies are addressing ESG issues. All of the companies reported on ESG measures, but according to RAN, they varied in quality and corporate actions “were generally inadequate relative to the ESG risks associated with tropical forest-risk commodities.” Case studies from the pulp and paper, timber, and palm oil industries reinforce the notion that company Code reports have significant gaps that must be remedied in order to provide transparency and improvements in ESG reporting and performance.

The authors conclude that all 10 of the companies assessed are exposed to significant ESG risks – with some even currently involved in conflicts with local communities – despite claiming to be compliant with the Code. In turn, RAN notes that Japan’s Corporate Governance Code does not presently enable confidence in the corporate sustainability performance of Japanese companies.

The RAN report offers several recommendations for the Financial Services Agency (FSA) to improve the Code, for the Tokyo Stock Exchange (TSE) to enhance guidance for reporting, and for companies to strengthen engagement and positive ESG outcomes in forest-risk commodity sectors. The organization also asserts that company reporting on sustainability and stakeholder issues should be subjected to more active monitoring and verification by Japan’s FSA until standards have improved. RAN further suggests that more accurate reporting is the key to better corporate internalization of ESG issues.

It would be presumptive to suggest that the 10 companies assessed for RAN’s report are entirely representative of all Japanese companies. However, the report makes it clear that there are issues that must be remedied in order to make positive and pro-active ESG measures more commonplace, as well as provide shareholders with a complete and accurate portrayal of companies’ risks.

Hannah Furlong is an Editorial Assistant for Sustainable Brands, based in Canada. She is researching the circular economy as a Master's student in Sustainability Management at the University of Waterloo and holds a Bachelor's in Environment and Business Co-op. Hannah… [Read more about Hannah Furlong]

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